Things to Consider When Implementing a Customer Capitalism Strategy

In my last post, I described a management paradigm called Customer Capitalism; the theory, as put forth by Professor Roger Martin, is that firms should focus on satisfying their customers while ensuring that their shareholders realize an acceptable rate of return (on a risk-adjusted basis). This is a sound theory – we at Walker would certainly concur with Professor Martin – but like most management theories, the execution of the strategy is where the complexity lies.

Our work with clients suggest that any firm intent on building a culture of customer-centricity should consider four key areas of focus, particularly if the strategy is more transformational in nature (for an example of such a strategy, see this post by my colleague Brad Harmon on the shift underway at Domino’s Pizza). The key areas of focus are:

1)Organizational support – Is this a top-down initiative? Are key people and/or teams established to facilitate the shift toward a customer-centric culture? Without the proper buy-in and support structure, the execution of the strategy will be difficult if not completely impossible.

2)Integration into work processes – Do all entities become customer-centric, or just client-facing employees (the right answer, of course, is everyone)? Have the work/process flows within the organization been reviewed to determine the extent to which they are supportive of a customer-centric strategy? Do we have methods of using customer feedback to ensure that information turns into action? The key here is to make certain that being customer-centric is what we do, notone more thing to do.

3)Incentive alignment – Most people have good intentions; however, it is usually true that what gets rewarded gets done. Consider this – if a company claims to be customer-focused but only rewards customer support reps based on minimizing average call time, how often will employees go the extra mile to make certain a customer’s needs are met?Will customers interpret this as a customer-focused organization when they call for support?

4)Effective communication plans – In order to prevent the Customer Capitalism strategy from being “the flavor of the day,” ongoing communication plans for both employees and customers are a must. Moreover, the communication plan has to be multi-faceted to reach people with different listening and learning styles – this can include newsletters, emails, video streams (on the firm’s internet and/or intranet sites), advertising, etc. The key is to have ongoing and relevant information streams to maximize the probability of breaking through the clutter.

It is important that each of these areas be carefully planned and executed for one primary reason – any company that says it is (or is becoming) customer-focused sets a heightened expectation among its customers. That is, the fact of merely saying you are customer-focused means that customers will expect more. Not delivering on this promise can be catastrophic to the firm – consider the recent case of Toyota. For years, the Toyota brand has been built on the notion of quality – a breach of this brand promise (and the way that management has reacted to the crisis) has not only brought negative consequences to Toyota, but it has been argued that Toyota’s fall from grace has been more dramatic simply because customers expected more.

So, one may question the wisdom of implementing the Customer Capitalism strategy – it would appear that there is a significant downside to failure. While this is true, for the firms that approach the strategy in the right way (and weave customer-centricity into the fabric of their culture), the upside is considerable:

·Customers will be more loyal, meaning

·Customer retention (and existing customer growth) will be high, and

·Customers will be more resistant to being lured away by the competition, and

·Opportunities for price premiums will be more abundant, which means that

·The firm will enjoy a healthy P&L and balance sheet, which, in turn, leads to

·Opportunities for above-average shareholder returns.

However, getting there is not easy; if it were, everyone would do it, which would eliminate the strategic competitive advantage. By considering the four factors I outlined above, you will be moving on the right path.